2014-10-18 04:00:01.2 GMT
By Eric Lam and Joseph Ciolli
Oct. 18 (Bloomberg) -- David Wolf, a fund manager at
Fidelity Investments in Toronto, says equity spasms such as
those that shook global stocks this week scare professionals as
much as everyone else.
“My dad has been quite panicky,” Wolf said of his father,
Bernard, a retired economics professor from Canada’s Schulich
School of Business. “He knows what markets are all about and he
knows what the economy is all about, and even he gets scared”
when stocks rise and fall this fast.
One of the most volatile five days for stocks since the
financial crisis ended yesterday with the Standard & Poor’s 500
Index rallying 1.3 percent to 1,886.76. That pared the decline
since Oct. 10 to 1 percent and handed investors a fourth
consecutive weekly retreat. The benchmark index slumped as much
as 3 percent on Oct. 15 before recovering in the biggest swing
since 2011.
Stocks slid, recovered and lurched again as concerns
mounted that Europe will slip into a recession just as Federal
Reserve bond buying ends. Speculation that Ebola is spreading,
concern about the health of the global economy and selling by
hedge funds sent the Chicago Board Options Exchange Volatility
Index above 26 on Oct. 15, a two-year high.
Earnings season got under way with Netflix Inc. tumbling 21
percent for the week after a price increase slowed subscriber
growth. JPMorgan Chase & Co. slid 4 percent, the most since
August, after net income fell short of forecasts.
The Dow Jones Industrial Average retreated 163.69 points,
or 1 percent, to 16,380.41. The Nasdaq Composite Index lost 0.4
percent.
‘Buying Opportunity’
Wolf, part of Fidelity’s global asset allocation team, said
the firm has been getting more calls from clients worried about
the market’s losses. Very little about the outlook for the North
American economy has changed, he said, adding that the drop is a
buying opportunity not seen in months.
While Canada’s S&P/TSX Composite Index was essentially
unchanged for the week, the index had two days of losses of
about 1 percent and then reversed with two days of approximate 1
percent gains.
“This was a really spectacular week to watch,” Herbert
Perus, who helps oversee $36 billion as head of equities at
Raiffeisen Capital Management in Vienna, said in a phone
interview. “A lot of risks came into the minds of short-term
orientated traders.”
Hedge Funds
Stocks favored by professional speculators saw some of the
biggest swings. The 20 stocks in the Russell 1000 Index in which
hedge funds hold the biggest stakes have tumbled 8.4 percent
since the beginning of October, twice the rate of the full
index.
Small-cap stocks staged the biggest rally since June as
investors began to regain confidence. After sliding 13 percent
from March 4 to Oct. 13, the Russell 2000 Index rebounded with
three days of gains exceeding 1 percent. The index ended the
week up 2.8 percent.
The S&P 500 is still down 6.2 percent from a record a month
ago. Pressure is mounting for European Central Bank stimulus
such as government-bond purchases as the 18-nation euro area
struggles to rebound from a sovereign debt crisis and subsequent
austerity measures.
Speculation that central banks will step in to support the
economy fueled gains at the end of the week. The ECB will start
“within the next days” to purchase assets in the new program
to support the economy, Benoit Coeure, an executive board
member, said on Oct. 17. St. Louis Fed Bank President James
Bullard said the previous day that policy makers should consider
delaying the end of bond buying.
Airline Shares
Robert Stimpson, a fund manager in the Ohio town visited by
an Ebola-infected nurse, said his conversations have been
dominated by concern over the disease. Transportation shares
were whipsawed by speculation the spread of Ebola will hurt
travel plans, with the Bloomberg U.S. Airlines Index losing more
than 6 percent on Oct. 13. The gauge finished the week up 4.2
percent.
Chimerix Inc., a drug maker working on a treatment for
Ebola, had a weekly gain of 10 percent. Lakeland Industries
Inc., a manufacturer of disposable protective gear with a market
value below $100 million, slid 14 percent. The stock has doubled
in the past month.
“The market got to a position where it was prone to
weakness and it happened to occur at the same time that scary
news such as Ebola was rolling out,” Stimpson, who works at Oak
Associates Ltd. in Akron, Ohio, said by phone. “It’s a
confluence of factors coming together to lead to a very
difficult two weeks in the market.”
For Related News and Information:
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World Trends and Reversals: WT <GO>
Equity screening: EQS <GO>
Top Stocks News: TOP STK <GO>
--With assistance from Jonathan Morgan in Frankfurt.
To contact the reporters on this story:
Eric Lam in Toronto at +1-416-203-5725 or
elam87@bloomberg.net;
Joseph Ciolli in New York at +1-212-617-3928 or
jciolli@bloomberg.net
To contact the editors responsible for this story:
Lynn Thomasson at +1-212-617-0506 or
lthomasson@bloomberg.net
Jeff Sutherland
2014-10-17 22:00:00.0 GMT
By Kristen Schweizer and Marie Mawad
Oct. 18 (Bloomberg) -- Vincent Bollore is seeking to boost
his stake in Havas SA, in a move that would give the French
billionaire majority ownership of one of the world’s largest
advertising companies and more say in how it’s run.
Under the proposal, minority shareholders will get 9
Bollore Group shares, adjusted for a 1-for-100 stock split, for
every 5 Havas shares they hold, according to an e-mailed
statement yesterday. That’s a 19.5 percent premium to the French
ad company’s stock price and values it at 2.8 billion euros
($3.6 billion). Bollore Group currently owns about 36 percent of
Havas and would keep its Paris listing.
Havas, with annual sales of about 1.8 billion euros, is
France’s second-biggest ad firm, though ranks a distant No. 6
globally in the industry. The ad company would benefit from
better access to capital, said Bollore Group’s Chief Financial
Officer Cedric De Bailliencourt.
“This transaction gives Havas the benefit of the solid
financial resources of Bollore and the full benefit of the
Bollore Group’s international presence,” De Bailliencourt said.
Bollore is looking to “go beyond” a 50 percent ownership
stake in Havas, as well as “increase the free float of the
Bollore capital structure,” the CFO said.
Vincent Bollore, Bollore Group’s CEO, who has a net worth
of $4.5 billion, according to the Bloomberg Billionaires Index,
is also Chairman of Vivendi SA and a minority shareholder in
that company. After announcing more than $30 billion of asset
sales since last year, Vivendi is looking for opportunities to
expand its content production and distribution businesses.
Vivendi Expansion
Increasing his stake in Havas “will raise some questions
about whether Bollore’s end-game is to sell Havas to a third
party,” Ian Whittaker, an analyst at Liberum Capital Ltd.,
wrote in a note. “Vivendi will also inevitably get linked,
especially given its financial firepower post-disposals.”
Bollore Group yesterday appeared to try to quash
speculation surrounding a future sale.
“We have no intention to sell our controlling interest in
Havas,” the CFO said on the call.
Havas and Bollore Group shares were suspended in Paris
yesterday before the announcement. Havas last traded at 5.71
euros for a market value of 2.35 billion euros. Bollore Group
rose 3.1 percent to 378.85 euros, valuing the company at 10.4
billion euros. The holding company also has interests in
banking, shipping as well as electric cars.
Financiere de l’Odet shares last traded at 822 euros before
they halted trading.
“By strengthening its capital position through this public
offer, the Bollore Group underlines its will to pursue its long-
term commitment to Havas,” Yannick Bollore said in a separate
statement released by Havas. Yannick, Vincent’s son, took over
as chief executive officer of Havas in January.
A $35 billion merger between Omincom Group Inc. and
Publicis Groupe SA to dethrone advertising market leader WPP Plc
unraveled this year partly because of management clashes.
For Related News and Information:
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Havas Chief Bollore May Acquire Assets in Technology, Content
NSN N2S7M66TTDS5 <GO>
Top Media: TOP MED <GO>
Top Stories: TOP<GO>
To contact the reporters on this story:
Kristen Schweizer in London at +44-20-7330-7526 or
kschweizer1@bloomberg.net;
Marie Mawad in Paris at +33-1-5530-6290 or
mmawad1@bloomberg.net
To contact the editors responsible for this story:
Kenneth Wong at +49-30-70010-6215 or
kwong11@bloomberg.net
Niamh Ring, James Callan
Closing Market Summary: Cyclical Sectors Pace Upbeat Finish to Defensive Week
The stock market capped a cautious week with a rally that sent the S&P 500 higher by 1.3%. The Russell 2000 (-0.3%) underperformed, but the small-cap index still ended the week higher by 2.8% versus a 1.0% decline for the S&P 500.
Equities spiked at the start of the session after overnight comments from central bank officials boosted investor sentiment. To that point, European Central Bank executive member Benoit Coeure said that ECB purchases of asset-backed securities are set to begin within days, while Bank of England Chief Economist Andy Haldane also walked the dovish line, saying that recent economic data speaks in favor of delaying the BoE's first rate hike.
The comments were met with a rally across Europe, while U.S. futures spiked to ensure a higher start for the major averages. The Dow, Nasdaq, and S&P 500 spent the first two hours of the session in a steady climb, but reversed from their highs around noon ET and surrendered almost a third of their gains. For its part, the Russell 2000 gapped up at the open and retreated steadily throughout the session.
Interestingly, the early advance received significant support from high-beta areas like chipmakers and biotechnology, but session-long profit taking and the weakness of the small-cap index pressured high-beta groups from their highs.
The iShares Nasdaq Biotechnology ETF (IBB 265.21, +4.23) was up in excess of 2.5% at the start, but narrowed its gain to 1.6% by the close. Meanwhile, the health care sector (+1.6%) settled among the leaders.
Elsewhere, the PHLX Semiconductor Index notched its high during the initial 15 minutes, but narrowed its gain to 0.8% by the close. SanDisk (SNDK 82.80, -2.51) weighed, falling 2.9%, after its cautious guidance overshadowed better than expected earnings. For its part, the tech sector (+1.2%) settled just behind the S&P 500. Most large cap components held up well, but their strength was masked by a 2.6% decline in the shares of Google (GOOGL 522.97, -13.95) after the company reported disappointing quarterly results.
Another cyclical sector—industrials (+2.0%)—spent the day in the lead after General Electric (GE 24.82, +0.57) and Honeywell (HON 90.06, +3.67) reported better than expected results. General Electric beat bottom-line estimates by a penny, which has been a common theme for the conglomerate. Excluding today's report, the past five quarterly results from GE revealed either in-line results or one-cent beats.
Transport stocks also contributed to the strength of the sector with the Dow Jones Transportation Average (+1.5%) boosting this week's gain to 3.2%.
Today's advance caused participants to reduce their hedges, pressuring the CBOE Volatility Index (VIX 22.11, -3.09) to Monday's levels. However, VIX futures remained in backwardation with October contracts demanding the highest premium, which suggests options traders remain on the lookout for turbulence in the near-term.
Treasuries ended in the red with the 10-yr yield climbing four basis points to 2.20%.
Participation received a boost from options expiration with more than a billion shares changing hands at the NYSE floor.
Economic data was limited to Housing Starts/Building Permits and the preliminary reading of the Michigan Sentiment Survey:
* Housing starts increased 6.3% in September to 1.017 million from a slightly upwardly revised 957,000 (from 956,000), while the consensus expected an increase to 1.013 million
* Single-family construction rebounded after a one-month decline, increasing 1.1% to 646,000 from 652,000 in August * Multifamily housing starts increased 15.6% to 371,000 in September after falling 28.0% in August
* The University of Michigan Consumer Sentiment Index increased to 86.4 in the preliminary reading for October from 84.6 while the consensus expected a decline to 84.0
* Sentiment levels are at their highest point since July 2007 * Over the past couple of weeks, severe volatility in the equity market resulted in a sharp drop in stock market prices. The effect on the consumer, however, was negligible
There is no economic data of note scheduled for a Monday release.
* S&P 500 +2.1% YTD * Nasdaq Composite +2.0% YTD * Dow Jones Industrial Average -1.2% YTD * Russell 2000 -6.9% YTD
Weekly Market Update: The Correction That Wasn't
Market volatility reached epic levels this week. By Wednesday afternoon, the S&P500 had given up than 4% on the week after a series of unfortunate events hammered risk assets, drove liquidation and raised fear the dreaded correction had arrived. However most of the gap was filled in the second half of the week as the soothing possibility of more central bank easing emerged. On Wednesday, the withdrawal of Ireland's exotic tax avoidance laws, which inspired AbbVie to cancel its $54 billion merger with Shire, slammed many US hedge funds that were long Shire in an arbitrage trade. The same day, talk that the Greek anti-euro, anti-bailout opposition had strengthened its influence drove a massive sell-off in European peripheral debt, further hurting many US hedge funds that were long the instruments. On top of that the Ebola scare reached a fever pitch with false alarms across the US, though only one additional case was confirmed. The combined effect was risk asset liquidation, driving the VIX index above 30 for the first time in nearly two years. Commenting on Wednesday's market action, Goldman Sachs' CFO said investors were "shooting first and asking questions later." Then on Thursday, the ECB said it would adjust haircuts on bonds used as collateral for loans to Greek banks and Fed Governor Bullard said the FOMC should consider delaying the end of the QE taper this month to help stem the slide in inflation expectations. Both announcements helped propel a move higher, aided by some better US data late in the week and a round of mostly solid earnings reports.
For the week, the DJIA dropped 1%, the S&P500 fell 1% and the Nasdaq lost 0.4%. The Nasdaq briefly entered correction territory on Wednesday, joined by the Japanese Nikkei Index on Friday, while the S&P500 reached 9.5% off of September's high before rebounding. The market stampede was even more jarring in the bond market, as the US 10-year dove 43 basis points between last Friday's close and the height of the fear on Wednesday before closing back at the key 2.20% level on Friday.
The data out on Wednesday suggested the global slowdown may be finally catching up with the US economy. September US retail sales were negative (-0.3% v -0.1%e; Control Group: -0.2% v +0.4%e), with the key control group, which is used to help calculate GDP, way off expectations. That was the first negative reading for the series since January, when severe winter storms depressed the series temporarily. September PPI producer prices were softer than expected, teeing up a soft CPI reading. The New York Fed's Empire manufacturing index was well under expectations, with the new orders component turning negative.
In Europe, markets tested Mario Draghi's "whatever it takes" position after developments in Greece provided an opportunity for attack. Peripheral bonds sold off hard late on Tuesday and into Wednesday after a poll in Greece showed the anti-bailout, anti-euro party Syriza with a 6.5% lead over the governing New Democracy party, well ahead of the 1.4% lead seen in the last round of polls. There is a presidential election in Greece in February, which could be followed by early parliamentary elections. Greece's bailout is officially over in little more than a year, but PM Samaras would like to end it early in order to get ahead of his Syriza opponents, who talk often about getting Greece out of the eurozone. The rush to end 1% bailout government financing and jump into public markets, at a rate more around 7% (or the prospect of Grexit) drove the stampede out of Greek debt and a big drop in the stock market, both of which shocked wider European equities and sent peripheral debt spiking higher.
The Irish government confirmed that it will eliminate its notorious "double Irish" tax structure, just a few weeks after the US Treasury said it would put up roadblocks to tax inversion deals. The first victim of the changes was the $54 billion AbbVie/Shire merger (Shire is headquartered in Ireland). The implosion of the deal was cited as one of the factors deepening the sell-off on Wednesday. Many hedge funds had long Shire/short AbbVie arb trades riding on the merger and Shire shares lost over 20% as the deal unravelled, pummeling the funds and forcing liquidation. Recall that back in July, AbbVie's CEO said the tax benefits were an advantage in the Shire acquisition but were not the central rationale behind the deal. AbbVie will have to pay Shire $1.6 billion to break their engagement.
European governments are wrangling with 2015 budget planning and the process is exposing many of the very stresses that have prevented the Eurozone from escaping the long reach of its crisis. Budgets proposed by France and Italy both abandon pledges to bring deficit-to-GDP ratios into compliance with the 3% treaty limit. Last Friday S&P cut France's sovereign outlook, and on Wednesday Fitch put France's AA+ sovereign rating on negative watch. German Chancellor Merkel said there could be no exceptions to the EU deficit rules even as French President Hollande demanded flexibility, setting up another axis of tension in the EU.
The German government cut its GDP growth forecasts for 2014 (from 1.8% to 1.2%) and 2015 (from 2.0% to 1.3%), bowing to the reality of the European economic slowdown. Berlin insisted it would not change course on policy or austerity despite the worsening outlook. Merkel said that the government would still pursue its balanced budget goals.
The two cases of person-to-person Ebola transmission in the US appeared in Dallas, Texas. Two nurses who helped care for Thomas Duncan, the Liberian man who died last week, tested positive for the disease. There was widespread consternation on reports that the second nurse was cleared to travel to Ohio and back by air while also beginning to feel certain symptoms, including fever, associated with the disease. There was a cascade of Ebola scares in Ohio, San Diego, aboard a Caribbean cruise ship and other locations from people who had unknowingly travelled with the second nurse, although as of now there are still only two Ebola cases in the US, the nurses.
The growing rift in OPEC pummeled oil prices this week, and front-month WTI crude sank below $80 for the first time since June 2012. Persian Gulf states were said to be targeting crude prices around $70 with the aim of making US shale production uneconomical, and were said to be opposing any OPEC production cuts at the November meeting due to fears they could permanently lose market share. Non-Persian Gulf OPEC nations plus Iran pushed for the organization to adopt a production ceiling of 30M bpd. Venezuela called for an emergency OPEC meeting, but its demand largely fell on deaf ears. The IEA Monthly Report trimmed global oil demand growth forecasts for 2014 to their lowest level in five years and also trimmed its 2015 demand forecast. The IEA said any more crude oil price declines would require lower demand or supply cuts.
Wall Street banks had largely good news in their quarterly reports. Goldman Sachs reported excellent third-quarter results and raised its dividend nearly 10%. Revenue was up 25% y/y and net income rose a whopping 60% y/y. Morgan Stanley had similarly strong results. JPMorgan's profits were slightly lower than expected, but compared favorably with the loss seen a year ago. Bank of America either reported income of $168 million or a small loss in its third quarter, depending on how the bank's massive $5.8B DoJ fine for mortgage issues is counted. Shares of Citibank soared after the bank said it would exit stagnant business in 11 countries and modestly topped expectations in its third quarter.
Shares of railroad CSX gained after reports asserted that the company had rebuffed a merger proposal from Canadian Pacific last week. If a deal were reached, the companies would have a combined market value of $62 billion. Big regulatory obstacles stand in the way of a merger - the US Surface Transportation Board has a history of intervening in mergers over fears that the industry would end up with just two North American transcontinental railroad systems.
Overall volatility also whipped around currency trading this week, although there appears to be a slight strengthening trend in the euro as the single currency rises off the record lows seen in the first week of October. EUR/USD came into the week around 1.2610 and after the excitement on Wednesday appeared to be consolidating around the 1.2800 level. Meanwhile, the yen also strengthened, with USD/JPY declining from highs of 107.70 to lows around 105.5 on Thursday, before closing out the week around 106.65.
The Shanghai Composite fell 1.4%, the biggest weekly decline in four months, as the mainland index turned increasingly less immune to the global market rout amid a set of mixed economic figures. September Trade Balance hit a 5-month low of $31B, even though the y/y increase in imports and exports marked 7- and 19-month highs respectively. New Yuan Loans were also more encouraging at CNY857B - a 3-month high and well above the CNY746B consensus. Inflation indicators were still decidedly subdued however, as 1.6% CPI marked a near 5-year low while PPI of -1.8% was down on the year for the 31st consecutive month. Monetary authorities are taking notice with further incremental liquidity injection measures. On Tuesday, the PBoC lowered the offering yield on its 14-day repo by another 10bps to 3.4%. On Friday, the PBoC also announced an additional CNY200B injection directly into the banking system targeting 20 joint-stock Chinese banks. The balance of key China economic data for September along with Q3 GDP will be released early next week, followed by the October HSBC flash manufacturing PMI on tap for Thursday.